The insurance industry all over the world faces money laundering risks. Due to large fund flows through the insurance industry, insurance companies have to comply with AML regulations. In the past, insurance companies had become targets for money laundering operations due to insufficient AML controls. Now, many local and international regulators, especially FATF and the European Union, have published AML regulations for the insurance industry.
Money Laundering Methods in Insurance Sector
Insurance companies have to pay particular attention to common money laundering methods. Within the insurance system, money launderers can structure transactions, force employees to collaborate, and enforce appropriate reports, or set up apparently legitimate "front" insurance organizations to launder money.
The most common form of money laundering that insurance institutions will face is by entering offers in a single premium contract. Money launders will then try to get the money back through a fraudulent claim. Money launders use insurance companies for money laundering by purchasing insurance and then making claims to get insurance funds. Sometimes they take advantage of investment-structured insurance products, such as variable annual income and certain life insurance policies. Money launderers and those laundering out of these policies can create 'innocent' remittances or check flows, all for the relatively low cost of early withdrawal penalties.
Let's examine the Duties and Responsibilities of Insurance Companies Regarding AML Compliance.
Duties and Responsibilities of the Board of Directors for AML Compliance
The board of directors is responsible for the adequate and effective execution of the company's AML / CFT programs. Accordingly, the board of directors is responsible for establishing the company's AML compliance program and employing an AML compliance officer. In addition, the board must ensure that the risk management, monitoring, and other activities are carried out in a coordinated and effective manner.
Responsibilities of Insurance Company Employees for AML Compliance
Company employees must comply with the company's AML program to prevent, deter, and report any money laundering activity or suspicious transaction. Company employees are obliged to report any suspicious transactions to the financial intelligence units.
Duties and Responsibilities of the AML Compliance Officer
AML compliance officer is responsible for meeting the obligations of the company. The compliance officer must establish and implement an AML program on the prevention of money laundering and terrorist financing. The AML compliance officer is also responsible for the board of directors for the implementation of this program. AML compliance officer also needs to store customer documents and transaction records.
Know Your Customer for Insurance
Insurance companies are obliged to implement "Know Your Customer" procedures to their customers with whom they will establish business relationships. In this process, the insurance company has to collect the customer identification information and check the accuracy of these credentials. Insurance companies also have to implement identification to legal entities, associations, and foundations. Ultimate beneficiary ownership checks are also among the responsibility of the insurance companies.
Customer Due Diligence for Insurance
The basis of AML controls is risk assessment. Customer Due Diligence procedures determine the risk level of the customers. While determining the customer's risk level, the line of business where the customer operates is an important factor. In addition, sanction lists, PEP lists, and adverse media data need to be checked by insurance companies. Insurance companies having a business relationship with matching customers in the AML data can hurt the insurer's head. That's why risk assessment is so important.